information is consistent for not materially inconsistent with the financial statements. so, as part of our audit, we have identified controlled efficiencies we are reporting to you. i want to put the control deficiencies in context. they are the lowest level of weakness in financial reporting. and so, as i mentioned before, we did not identify any material weaknesses in internal controls. these are the lower level deficiencies. i will walk you through them briefly. supervisor campos: if i may ask, what would be the definition of a controlled deficiency? >> the definition is that it is a weakness in the design or operation of a controlled procedure that employees, during

the normal course of the procedure, would not prevent, detect, or correct a misstatement on a timely basis. that is the lowest level of definition. so what is the highest concern? the material weakness. a similar conflict. however there could be a reasonable possibility on material misstatement could occur and not be presented, undetected, or corrected. supervisor campos: ok. thank you. >> we have an observation for the redevelopment agency. part of our audit, we always looked at where our finance stands, where they set aside a minimum amount. we note there was one bond issue that did not meet the requirements. however, all the other funds, if you combine them with the trustee, they were sufficient to meet that requirement, and that

was permitted by the bond agreement. there are enhancements of controls that could be afforded here to monitor that, to ensure there are no deficiencies in the requirements. as it relates to the general city, part of our testing of internal controls over cable policies and procedures, -- payroll policies and procedures, we looked at and determine whether there was compliance with those policies and procedures, and one of the things we looked at was time she reporting. whether they are submitted and approved. we identified one item of noncompliance, and upon further investigation, we noted there were three management-level employees who did not submit time sheets. in addition, in the mayor's office of housing, we identified

five instances were time sheets were submitted. however, there was no evidence of a supervisory approval. supervisor campos: did you get a sense of why that was the case? >> pardon? supervisor campos: ok. >> basically that is what they indicated. next item -- pest control of the san francisco film commission. they are such a small organization. sometimes you are not able to segregate duties appropriately. we found an instance where the individuals to collect the cash and make the deposit for the record has access to the cash and access to the record. anytime you have that situation, there are opportunities. supervisor campos: this stood up for me in reading the report.

he said in the review of cash collecting procedures identified a risk of misappropriation of assets. >> yes. this occurs because the person who collects the cash has the ability to correct the records. when you have that situation, other good -- there is our risk of it. i am not saying there -- i am not saying that this occurred. the records can be adjusted to hide the fact that the cash was taken. supervisor campos: do you have any sense why it was allowed that that was allowed to be the case, were one person had access to the cash and control of the records? >> i think we understood it had to do with the number of people there. you sometimes do not have that. as a result of that, we said, obviously the best case scenario is to have the person who has the access to the cash collection not have anything to do with reporting that information in the accounting

records. after that, we suggested additional reviews to be performed by the executive director to ensure the amounts that were collected made sense and relationship to the permits were issued, the amounts that ultimately get reported and reviewed by the executive director, as an alternative to that. supervisor campos: how much money are we talking about here? >> oh, gosh. i do not know. supervisor campos: thousands? >> i do not know how to answer that. supervisor campos: what we do this? i am going to ask each department to respond to the finding at the end. we will definitely have an opportunity to respond to that. thank you. >> ok, the next item is maintaining the signatories in credit card accounts. this is a situation where the department has its own bank

account for cash and other permitted purposes. we noticed instances where the signatory information was not current, so we encourage the departments to ensure all that information be maintained on a current basis. the last control deficiency we observed was memorializing the fact that the treasury tax collector has performed the reconciliation between the sunguard system and the custodial records. they informed us that they do do this, but they do not have the evidence of the actual reconciliation to prove that they in fact do it. it was more of the documentation issue there. those are the current observations. we do have a follow-up study on page 9 in our report.

the prior year recommendations. i think i briefly indicated, there was one finding that was implemented in the current imple current year. there were two findings implemented in the current year. the ports of san francisco have three findings that are carried forward. they are still in progress with the comprehensive disaster -- and they have made efforts to complement that. they do not have the resources to develop the plan. maybe the department can respond to that. we had identified assets -- and we had a comprehensive inventory. >> can i ask about this? what does this mean, exactly?

>> a lot of times, the records are maintained and there is a lot of detail. and these are no longer in use and may not be removed from the record. i do not think we found the situation with active settings listed, that were not recorded. it is more like cleaning up the detailed records once you dispose of the asset. if you properly appreciated this asset, this would have no impact on the financial statement. but if this does not exist anymore, he would have the impact on when you were writing best. >> going on about the lack of resources with the comprehensive disaster recovery plan -- >> the department can more

properly respond to this. i think that in order to do this, it takes time from the staff, and maybe they do not have this. we do not audit these responses, we take these at face value. the last one had to do with -- internal controls over the supply, and the progress in implementing these recommendations. they believe that the final implementation will occur as the results -- and it will help them with appropriate controls over those assets. >> can i ask you about -- when was it that these findings were made? >> one of them was made last year. among them was made in 2008.

i think all of them were made with prior-your findings. >> my i ask you a question? is this typical in terms of the status, with 2008 -- the controls over the materials and the supplies. this is still in progress in 2011? i know that you do not audit the actual response. but how does this compare to what happened? >> when implementing these issues, you have to look at a cost benefit for this. management will prioritize this. and every government is different. we do have some governments that have repeating comments that go on for more than three years.

general city had three things implemented, related to working with capital assets and record keeping, and we thought that this could be enhanced. they are still working to make certain that there is the required grant money. they can keep track of them but they do not need the threshold for the financial statements. they are still working with the departments on this. the single audit finding that we have from the prior year was implemented, and then we had other observations and informational items into of the three findings were implemented, and one of them is still in the process. they would be well-advised to

take a look at the internal control over this process. certainly as a result of the decline in staffing and resources. and when you have fewer people doing these functions, you may run into a situation in the internal controls are no longer optimal. we will continue to look at this as staffing declines. the last portion of my comments relate to the single audit, and this is the federal reward program. we had an audit for 16 major programs and those covering 11 different apartments -- departments within the city. of those programs, there were 12 including the recovery act funding. there has been additional guidance with respect to certain

programs and funding levels. we issued the unqualified opinion on this, except for the control program. we had a major compliance finding, as it comes to the salary benefits. i will come back to that of that later. we edified three material witnesses in control of the compliance for the deficiency. and so, let me put these findings in context for you. the very first finding is related to the community development block grant program. this is a type a program, that means a large-dollar program. this is about $20 million for expenditures, and this is only about 871,000.

and we have the smaller programs. items two, three, four, and five, are all under $1 million. because of the nature of the funding sources, we have to audit some of these programs. these are not large color programs. this actually ties into the compliance with the city policy, with respect of the rising and approving time sheets. we found that this is where we have the issue in the mayor's office. the other relates to the lead hazard.

the amount of benefits for the grant program are based on the budget estimates. and the cost principles -- this requires that you should be able to support the amount that you charge, so this should really be supported by actual time and effort, with some kind of time she -- time sheet reporting. this related to the fact -- that this was a large dollar amount, this was the qualification. >> and which department is this? >> this is the mayor's department. the other finding related to the grant program had to do with the fact that this was permitted under the grant rule. due to the unexpected delays in

making the expenditures, the city actually made some money. and this money will have to be returned. this was not returned during the year. there were not timely with respect to the advance. >> and this was a lack of understanding for the rule? >> we can certainly look at this. the next finding related to the capitalization grant for the funds -- this was administered by the port, with 51 of 91 items -- we had 51 certified payrolls to see if the court received those payrolls, -- port received those payrolls and

found 21 instances where they paid in advance of receiving this. you are at risk if you find that the wages were not paid -- and you have actually made the payments to the contractors. we were wanting everyone to make certain that payment was withheld. the last item had to do with the immunization. whenever the city passes money through, to these recipients, they have to tell them that this is a federal grand. there was a delay in the process, and the grantee was informed of the review, but the initial notification did not take place. the documentation was not available.

this is an overview of most of the audit, and we will entertain any additional questions. >> before we hear from the departments, i do have a general question and i apologize if this is a dumb question. with this article, there was a report that the city -- the rating was recently downgraded. i am wondering if the reasoning for this -- does this implicate any of the things that you are looking at, or the work that you are doing? >> we always monitor what is happening with the various ratings. this is part of the management

discussion and analysis. management is required to indicate -- and use it is disclosed in the annual financial report. if you look at the ratings agency and their perspective, reading this article briefly, there is a bit of long-term sustainability issues against the short-term fixes. will we actually do and are compelled to do with professional standards -- we have to look at the city from a going-concern perspective. it is not that the city will not exist. the question is if we can meet our obligations. we look at this every year and this is important for the

auditors. it is important to look at this at the end of every year. we only look to one year in the future. >> persistent and large budget gaps have been resolved with one-time or temporary solutions, leading to a structural imbalance that is unlikely to be resolved by economic recovery. is this something that you would be looking at? >> under the current standards, we do not look at the long-term sustainability. we look into the future for one year or maybe thereafter. and can the city continue to exist and operate as normal? one thing that we are currently looking at is economic reporting

for the government. and the sustainability. this is a project we are looking at. is this going to be subject -- there are other issues that are long term, for this perspective. the government is taking a look at this. >> we are meeting the mandate going to this process -- and yet we have this -- and can we make certain that we're catching these things? >> management has to look. these issues are future issues. we have to look at the short term fix. we have to make certain that we

have the sufficient resources to play -- pay for the obligations. the long-term fix is more difficult. we certainly recognize this at the local government level and the federal level. these are the things that people are looking at for the future. how do we manage this in the future. can we manage this and what will this do providing services? >> supervisor farrell? supervisor farrell: with these witnesses, have there been corrective actions taken? if you were going to have another report this year, the believe that these would be corrected? >> a lot of the management has implemented these procedures. we have not been looking at this. the materials are from the grant

programs and not to the city. >> we should hear from some of the departments that are here, to discuss some of the steps that have been taken to address some of these issues. one thing that we are doing in this committee, we are reviewing the audits and reports and we want to give an opportunity for you to tell us what you are doing, to take any kind of action as we continue to monitor and come back and a future date, so that we can continue the ongoing monitor activity. we have the fine arts museum here, -- >> i am charlie castillo, the director of human-resources at the fine arts museum. i would like to begin by saying that we were using time sheets,

for the managers. you may or may not know that this is a city department and this is also a nonprofit agency. of the employees, only 160 are funded by the city. and those come only from the managers. with all due respect to the auditors, the oversight, as much as it was a policy, in compliance with the state law regarding the exempt employees. as you know, in which -- with -- when we treat those employees, we run the risk of not getting the overtime. we have to implement this and we have no problem doing this. we immediately submitted the

time sheets. i think that we are in compliance. >> thank you. is there anyone here from the film commission? good afternoon. thank you for waiting. >> i am the filming coordinator. we did implement the request from the executive director, when she signs the permits. this is entered into the data base before we submit the deposit to the fiscal team. you have a question about the quantity of cash. we had nine transactions, $900 in cash. 164 transactions. 234 credit-card transactions.

ever since we have been able to except the credit cards we have had very few cash transactions. we had one cash transaction for $200. >> 1. that was made in the report, was the risks of misappropriation of assets. >> you are confident that there was no misappropriation of actions? and is there anyone from the treasurer's office? and again, i want to thank the department for waiting. >> we have a couple of comments from a management letter, one of them involves updating the signatories, and we are up to date with all of this. we led -- regularly review

these, the departments that we have with a regular basis. this is to the best of the ability. this is up to the departments to let us know. this is when the personnel changes. >> this is when people leave and you are not informed in time by the departments, -- >> will not necessarily know that these are gone. the other is investment reconciliation. we were not actually setting aside the document. we are in balance each month. and we can prove how we did this. >> is this a question of documentation. thank you very much. let's hear from the port of san francisco.

thank you for patiently waiting. >> i am john wu, a manager for the ports. i do not have 100% -- they are backing me up. there were three comments, from the 2009 audit, as well as one sandal audit to comment on. i guess i should back up, and thank them, even though we have any comments. i thank him for being very supportive in the process.

with respect to the disaster recovery, i would like to clarify that the audit comment, related to the information system, we have the general controls. one of the requirements -- there was a substantial computer system and a computerized system, that we were backing up, and we were bringing the system back up. the comment was directed at us not being able -- we did not have a well-defined plan, and the facility to bring up these tapes. that is the kind of context and they brought this in so it looks like we were doing nog